“Nurturing a constructive and stable market environment is our highest priority”, said Khalid Al-Faith, Saudi Arabia’s minister of energy and president of the OPEC conference on Thursday.
The cartel has agreed to prolong supply curbs for another nine months during a ministerial meeting on Thursday in Vienna, two Opec delegates familiar with the discussions said. With crude prices above $50 a barrel from lows of past year, they are increasingly moving back into the market.
The decision to maintain the production cuts for nine months was unanimously approved by the Vienna agreement signees, Novak stressed. A further extension might not be needed, as OPEC and independent producers expect to be “at the target at the year’s end”, the minister said.
Members of a joint monitoring committee, with includes Russian Federation, recommended Wednesday that the agreement last until March 2018.
While the Organization of the Petroleum Exporting Countries’ prior production cuts strengthened crude oil prices in the past, the euphoria in the market appears to have faded. The two sides chose to remove about 1.8 million barrels per day from the market in the first half of 2017, equal to 2 percent of global production. It fell earlier by around $1 after comments from ministers dashed market bulls’ hopes for deeper cuts or an extension by as long as 12 months. Cuts are likely to be shared among all participants of the deal.
While oil producers are eager to push prices up by freezing output, staunch competition from USA shale producers, which are leaner and faster operations, tends to push prices back down whenever they go above a certain level.
“I think nine months is most likely”, said one of the OPEC delegates and four others agreed to it. There’s concern about whether Opec could return to the free-for-all production that caused prices to slump from 2014 to 2016.
The Opec has a self-imposed goal of bringing stocks down from a record high of three billion barrels to their five-year average of 2.7 billion.
WTI crude dipped to near $50.50 p/b with Brent at $53.15 and choppy trading is inevitable over the next few hours at least.
Rather than restrain output, USA producers are expected to increase output by more than 1 million barrels of oil per day next year.
Analysts also said that the OPEC-led production cuts would support a further rise in U.S. output. And U.S. producers are poised to expand more. The day’s volumes of 1.1 million contracts of WTI were the highest since the November 30 session, when OPEC first announced cuts.